Are Strong Financial Prospects The Force That Is Driving The Momentum In Easy Lease Motor Cycle Rental P.S.C.'s ADX:EASYLEASE) Stock?

Easy Lease Motor Cycle Rental P.S.C (ADX:EASYLEASE) has had a great run on the share market with its stock up by a significant 16% over the last month. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to Easy Lease Motor Cycle Rental P.S.C's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Easy Lease Motor Cycle Rental P.S.C

How To Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Easy Lease Motor Cycle Rental P.S.C is:

24% = د.إ41m ÷ د.إ172m (Based on the trailing twelve months to September 2023).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each AED1 of shareholders' capital it has, the company made AED0.24 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Easy Lease Motor Cycle Rental P.S.C's Earnings Growth And 24% ROE

To start with, Easy Lease Motor Cycle Rental P.S.C's ROE looks acceptable. Especially when compared to the industry average of 8.2% the company's ROE looks pretty impressive. Probably as a result of this, Easy Lease Motor Cycle Rental P.S.C was able to see a decent growth of 19% over the last five years.

As a next step, we compared Easy Lease Motor Cycle Rental P.S.C's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 3.6%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Easy Lease Motor Cycle Rental P.S.C fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Easy Lease Motor Cycle Rental P.S.C Making Efficient Use Of Its Profits?

Easy Lease Motor Cycle Rental P.S.C doesn't pay any dividend, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.

Summary

Overall, we are quite pleased with Easy Lease Motor Cycle Rental P.S.C's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. You can see the 3 risks we have identified for Easy Lease Motor Cycle Rental P.S.C by visiting our risks dashboard for free on our platform here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.